Photo By: Robert Bye

In 2007, shortly before I turned eighteen and shortly after I started my first part-time job as a W2 employee. I opened a checking account at a local branch of a regional bank. Probably like a lot of kids, I simply chose the same financial institution that my parents used. I also was less concerned about the specifics of the checking account and more-so concerned with just having a place to deposit my hard earned wages and replacing wads of legal tender with a single plastic apparatus, the debit card. It was a student account. It was free. It earned nothing, but that was fine. Concepts like interest were completely lost on me at that age.

I had that account for ten years and it served me remarkably well for ten years. When I married my wife in 2014, I convinced her to join her checking account into that checking account. Of course at this point, we no longer qualified for the free student checking account and the account was converted to the dreaded monthly fee equivalent. However, we were able to avoid this by incorporating an automatic direct deposit to the account and keeping the average monthly balance above the required threshold. Shortly after we joined our accounts, I also opened a Savings Account at the same bank. My pay check would deposit into the Checking Account and my wife’s paycheck would deposit into the Savings Account and we would simply budget off of my income and save all of hers. Better yet, we would earn interest on the money accumulating in the Savings Account. My money would be earning money!

How much interest?

0.01% APY

Oh yeah. Sounds pretty good. I guess. Frankly, I had no idea. And that’s where it started.

I remember in my young adult years hearing the following, ”Find a good local bank that you’ll do business with consistently and it’ll pay off in the future when you need an advantageous loan.” There is merit to this advice, you would imagine that having an established good history with a specific bank would encourage them to give a lower interest rate on a new loan or to take the risk of offering you a loan based on this history. And that’s where I was in 2016 as I was entertaining the idea of refinancing my auto loan.

When shopping around for various refinance auto loans, I turned my attention to the local branch of this same regional bank. They would know me much better than anyone else so why not try there first?

I walked through the doors of the office and sat down with one of their loan officers and she detailed two options.

Option 1 was a refinance loan with marginally better details than our existing auto loan.

Option 2 was a considerably better loan from an interest rate perspective.

But there was a catch. You had to qualify for Option 2 based on your FICO credit score. Apart from the estimations provided by my credit card provider, I did not know if my score met this requirement.

“I’m not sure that my credit score is that high. I think it is, but I’m not certain. However, I’ve been a customer of this bank for almost a decade and I have an extensive history of minimal overdrafts and I’ve had no complications during this time. I also have established income history.”, I pleaded.

And it was true, my history should speak for itself. I wasn’t just some unknown Joe Schmo walking off the street and requesting a loan. I was a valued customer!

“I understand that sir, but this loan is only for those whose credit score qualifies. I will have to run a credit score lookup to verify that you qualify.”, she responded.

I wasn’t upset, really. I understood that she was simply following the bank’s protocol. However, this experience worked against the advice that I had often heard earlier.

Instead of taking the small hit of a hard inquiry to retrieve my credit score just to see if I did or didn’t qualify, I thanked her for her time and left the bank. A couple of days later, after asking anonymously online, I was recommended a credit union that had a reputable refinance auto loan product with much better terms and I was approved in minutes through their online process.

Granted, if my credit score was an issue, I probably wouldn’t had such an easy process. However, this credit union didn’t know me from Adam. The other bank had nearly a decade of positive history to review. This made me question, ”What is the benefit of me staying at this bank? They have made money off of me for over a decade by loaning out my money and yet I’ve received nothing in return.”

Apart from location, I couldn’t come up with any distinct advantages. I just worked under the assumption that most banks were pretty much the same. I was wrong.

Let’s revisit that Savings Account from earlier since it provided the impetus for these account changes. 0.01% APY. I mean, I knew that you shouldn’t expect to get rich off of your Savings Account. It’s simply a low-risk vehicle to store money largely out of sight and out of mind.

But after reading up, I realized that there were accounts that offered as much as 1.0% APY (and more in some cases). Though many of these banks had paperwork and fine-print details that needed to be consumed before establishing an account, one bank that kept reappearing in testimonies was Ally Bank (which as of typing, has an APY of 2.20%). At the time, this was a 100x improvement on my current Savings Account.

What was the catch?

How could this online bank afford such premium interest rates? Well, there didn’t seem to be an obvious catch. Online banks could afford a higher rate because they didn’t have the same expensive overhead of the physical location of your typical brick and mortar establishment.

I quickly opened a new account at this online bank and transferred all of our funds from the other Savings Account and closed it shortly thereafter. One month of interest in this account was 10x more than the accumulation of interest of the previous account since its inception.

But I was perfectly happy to continue my checking account at this regional bank. It was local for cash deposits which was convenient. It was free for the most part since I had my direct deposit set up with this account. Also, it was a checking account so there was no expectation of interest earnings like the Savings Account above.

Or was there?

I happened to be reading a post about a credit union that was offering what they called, Rewards Checking. Most replies leaned on the side of, “I don’t keep enough cash in my checking account to warrant moving my money to this checking account.” or “I don’t want to have to jump through the hoops necessary to qualify for the interest rate.” What interest rate are we talking about here? It started at 3.59% and increased in tiers to 4.59%.

But there were hoops.

Specifically,

• You would need to set up an ACH transaction (e.g., direct deposit).
• You would need to sign up for eStatements.
• You would need to log in online a specified number of times per month.

But the trickiest requirement was the following:

• You would need to use your debit card a specified number of times per month.

Why? Well, the bank makes money off of card transactions.

Also, these advertised rates only applied to a limited amount unlike the online bank’s savings account mentioned earlier. Also, these terms were subject to change (the scariest and riskiest of all).

There were two commonly mentioned credit unions that offered fairly high interest checking accounts. Consumers Credit Union and Lake Michigan Credit Union.

At the time of my research, Lake Michigan Credit Union offered the following:

3.00% up-to balances of $15,000

Consumers Credit Union offered the following tiers:

3.49% up-to balances of $10,000 4.09% up-to balances of $15,000 4.59% up-to balances of $20,000

How did you access these higher tiers? Consumers Credit Union also offered credit cards and to access the 2nd and 3rd interest tiers required spending $500 to $1000 a month respectively on one of their credit cards. Pbbfftt, I wasn’t going to bother with that since I already had a decent set up with my existing credit cards.

However, they had one card, their highest offering, that offered 3% cashback on Groceries, 2% on Gas, and 1% on everything else. If nothing else, these were competitive rewards and worth looking more into.

What about those card transactions? Well, there were many ways to accomplish this. Some recommended simply making small purchases with the card every month to satisfy the requirements. However, I wanted to avoid as many debit card transactions as possible as to not take away from the rewards of purchasing with a credit card instead. Others recommended utilizing an automated transfer system such as auto-reloading your Amazon Gift Card Balance using your debit card as the source. Others recommended doing something similar with a prepaid debit card such as an AMEX Serve card (which usually offered a smaller automatic reload amount option).

Either way, there were many options to either automate this requirement or handle it efficiently and it was enough to handle any discouragement that I had based around this last hoop. I settled on Consumers Credit Union and added their rewards card to my arsenal. Better yet, with a credit union, I was as much a member as I was a customer (for what its worth). As for depositing actual cash money into the account of a bank that wasn’t local to my area; I learned that many/most credit unions are part of a shared “Co-Op” network that allows you to deposit/withdrawal to/from your specific credit union at the physical location of any credit union that is a member of that network. The credit union also reimbursed any ATM fees incurred from ATM withdrawals.

Now there are multitudes of credit unions and online banks competing for customers with a variety of high interest products, each with their own set of specifications and requirements. One week, one bank has the highest offering, the next week, it’s another. For this reason, I would recommend picking one Savings Account option and Checking Account option that you’re most comfortable with and simply blocking out the noise for at least a year before considering moving to another institution. And I would heavily consider the difference between offerings and the advantages to ensure that they’re significant enough to warrant the move before moving.

In my case, I went from a Savings Account of 0.01% APY to now 2.20% APY and a Checking Account of 0.00% APY to 3.09% - 5.09% APY up-to $10,000. I would be less inclined to repeat the process to New Bank/Credit Union B who is offering 2.25 or even 2.30% APY or a marginal improvement. It was hard enough on my wife already with the original moves. Another important point to note is that interest earned in these accounts are still treated as taxable income.

Also, be wary of the fact that credit unions and banks are both in the business of making money and they do not shy away from bait-and-switch tactics on their products. Consumers Credit Union did eventually switch up the terms of the checking account, though it’s still a great deal. So always be prepared to move in those circumstances. Also, credit unions unlike banks do perform a credit check when establishing your membership which may affect your eligibility.

In Fall 2017, I walked into those same offices and proceeded to close the account that I had for over a decade.

“Wow, you’ve been with use for over a decade, Mr. Adams.”, the bank teller remarked.

“Yep.”, I replied.

And that was it.